Mixed views on DEXUS tower

DEXUS Property Group
’s flagship Sydney skyscraper, 1 Bligh Street, is likely to remain half vacant for another year, according to analysts at Bank of America Merrill Lynch.

A recent research note from the US institution predicted it would be another four years before the building was fully rented as the listed trust faces an increasingly “volatile" environment.

BAML’s real estate team, led by Simon Garing, said the uncertainty would prompt “key tenants, especially in Sydney where the market is heavily leveraged to financial services, to remain cautious".

And the bank warned that job cuts in the financial sector “could see a rise in vacancy and reduced upward pressure on rents".

At a recent tour of its Sydney portfolio, BAML noted that DEXUS was sanguine about the impact of Lend Lease’s Barangaroo development, which will inject an extra 300,000 square metres of office space into Sydney. BAML has an “underperform" rating on DEXUS.

However, Goldman Sachs and CLSA are more upbeat. Both described the trust as a “safe haven" with its long lease structures and prime property portfolio. Simon Wheatley at Goldman Sachs argued its languishing security price, at a 20 per cent discount to the net tangible asset backing, “appeared to present some absolute value".